Summary of the Articles
These two papers which are referenced in this assignment, as critically asserted by Lead Economist Branko Milanovic of the World Bank research department, present the global income inequality and its implications among citizens of the world. The first paper reviews the global income-expenditure distribution based on a household survey data from 91 countries which are then re-adjusted for some discrepancies in purchasing powers of individuals for the years 1988 and 1993 as the only years when direct international comparison data is available. The second paper by the same author is a presentation of a non-technical review of the measurement of the global inequality and its implications among citizens of the world and the relationship between global inequality and globalization and thus moves on to propose a redistribution scheme. The current paper thus is a summary review of the two articles by Milanovic and also gives the pros and cons of the same articles as well as personal reflections thereafter.
Adding to the reasons of intellectual curiosity, global income inequality is an issue of major concern due to several reasons: First is to gain an understanding of the world’s inequality in order to understand its size which is important in diagnosing many issues of the world economy. Secondly, is to get a picture of the relationship of the inequality with the current policies, that is, if they aid in its growth or not. Finally, the other reason is to derive ways of improving the global income inequality in case it is deemed too large. In the first article, Milanovic gives an analysis of data from different surveys which used GDP per capita and purchasing power disparities which later revealed a systematic relationship between the expenditure/income to GDP. The article also describes different approaches which have been used to survey data and finally focuses more on the methodological approach which then presents World Bank estimates of the people who live in total poverty (Milanovic, 2002). Milanovic explains the income inequality in what he calls first, second and third concepts of the income inequality. The first concept is the status of the income inequality which is developed through analyzing country’s mean income through cross-country regressions. The second approach of the income inequality expresses the distinguishing factors among countries’ mean incomes by taking each country into consideration through weighing its population size and variables of mean income. This approach has more enduring popularity due to its large component of global inequality as well as inequality which arises from income differences within countries.
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Finally, the third concept of inequality is between the world's individuals. This is always based on household reviews and is best done by combining individual countries’ household surveys for disposable per capita income (Milanovic, 2006).
Measurements using the Gini indices indicated that the global income inequality increased from 63 to 66 in between 1988 and 1993 (Milanovic, 2002). This was driven by the differentials in the average incomes between countries than the inequalities within countries. In other words, this means that the difference in concept 2 and 1 gave rise to the increase. The rising of the inequality has been theoretically linked with the issue of globalization which is thought to lessen income differences between citizens of the nations of the world.
According to (Milanovic, 2006), the size of global inequality is realizable with a good mix of national accounts information analysed by the use of the GDP per capita as the mean income and recipients being individuals. This analysis gives Gini values which all lie in the range of 63 and 66 with extremism of 61 and 71 and a highly defined similarity in results with a very small margin of standard error in terms of Gini points. 70% of global inequality is detected by the discrepancies which exist in countries’ mean incomes. Additionally, there are notable overlaps in countries’ distributions where some people from countries which are poor are considered better than others from rich countries.
The connection between global inequality and globalization. Theory from a logical perspective does not seem to rhyme with the reality of what has been observed over the years in the sense that, distributions in the rich, middle-income and poor countries have been tending to grow more uneven. This is still a subject of debate due to the increasing wage and income disparities in the United States (Milanovic, 2006). Some authors also are found to differ in the case of the relationship between openness and inequality. Some argue that there is no systematic effect while others argue that there is increased inequality with openness. Thus globalization affects mean incomes in both poor and rich nations differently, that is, globalization may lead to the divergence or convergence in different country incomes. It is a similar case of discrepancy in between populated and small countries.
The concluder of this summary is that; the global income inequality has been diagnosed to be very high (Milanovic, 2002) with a Gini coefficient of 66 as depending on a country’s purchasing power and 80 for dollar income adjustments. The global inequality is therefore increasing as learnt from the trend of 1988 to 1993 which represents a very fast annual increment of 0.6 Gini points per year which supersedes the U.S and the U.K. The discrepancy of mean incomes is the main factor in the diagnosis of the world inequality. Concept 1 and 2 were the criteria of increasing inequality between 1988 and 1993 but concept 2 made the inequality to shoot up more. The world inequality is dependent upon the relative positions of India and China which lie on one end of the spectrum as well as U.S France, U.K, Germany and Japan on the other end of the same spectrum.
Pros and Cons in the Analysis of Global Income Inequality from the Articles
The achievement of significant results in the analysis of key factors towards the realization of the Global inequality has also its advantages and disadvantages just as other studies. However, the advantages connected with the realization of the global income inequality are always the driving forces subsequent studies involving the inequality. This study helps to avail national income data distributions for the majority of the countries which can be used to diagnose many issues to do with a country’s economics. The realization of global inequality is also a key in the derivation of an approximate of variance in each normal distribution by employing the assumption based on the log normal income distribution. The use of Gross Domestic Income (GDI) per capita is also advantageous in that, the numbers are not relatively controversial even when sources are not in meaningful agreement; they still give universally accepted mean incomes for all countries (Milanovic, 2002; Milanovic, 2006).
However, there are drawbacks affecting global income inequality. First, the use of GDI is somewhat challenging because GDI is not income which can be recognized in any sense to either individuals or even households. This is because GDI includes the elements of corporate investment from a build-up of stock, retained profits etc. which forms the backbone of global income analysis. Also, there is no distributional neutrality since the GDI per capita is combined with distributional statistics which is a mix of different aggregates from different sources. Further, the quality of the conducted surveys did not reflect any even distribution. The surveys were conducted by different countries without any common criteria and retrieved for the global income inequality analysis (Milanovic, 2002). Additionally, the survey quality has no guarantee to have been carried out to standards as well as definitions of key terms such as national representatives may also vary from one country to another. For instance, in Israel, the survey does not include the self-employed personnel and rural populace. Another con is the potential discrepancy arising from the definitions given to expenditures and income by different nations of the world. Finally, the use of a single PPP exchange rate for the whole country can cause huge deviations in the survey analysis. However, the use of Gini points has helped to minimize the sources of such errors towards the realization of more logical results (Milanovic, 2002; Milanovic, 2006).
Personal Reflections
On my own view which is inspired by the texts of Lead Economist Branko Milanovic, (2002 &2006) there exists enough evidence that the global economic history predicts a changing global inequality in the future. Much empirical evidence has been asserted and much more is still available from different sources which present how the income inequality has changed and is still changing over time. Still, the levels of inequality in various countries also vary significantly. Furthermore, there are many different factors of which some have developed beyond debatable doubts and some are still subject to debate and others are potential research points on the factors which drive the inequality of incomes and distribution.
In conclusion, global inequality has been on the increase across the globe now for several decades. Although some nations have reduced the numbers of people living in extremism of poverty, the economic gaps still have been shown to widen which is an amalgamation of many factors. Whenever individuals meet and interact with one another, they do not simply have a national yardstick in mind when they compare their incomes among themselves, but this translates to a global measure. Thus globalization can aid increase the awareness of the incomes of others which can change or lower aspirations. This translates to the need for understanding the global income inequality.
Reference Articles
Milanovic, B. (2002). True World Income Distribution, 1988 and 1993: First Calculations, Based on Household Surveys Alone. Policy Research Working Papers . doi:10.1596/1813-9450-2244
Milanovic, B. (2006). Global Income Inequality: What It Is and Why It Matters. Policy Research Working Papers . doi:10.1596/1813-9450-386
